| Branch A Profit and Loss | $45,000.00 | |
| Purchases | $45,000.00 |
Reference to the solution above shows that Branch A Profit and Loss has been charged with $10,000 expenses and credited with $85,000 earnings from sales. The gross profit, therefore, on the period’s activities at Branch A is the balance of the Branch A Profit and Loss account, i.e., $30,000. The only other adjustment necessary is the conversion of the Branch A inventory of $14,000 to a cost basis. The true cost here is, of course, $10,000 since the goods were billed at 140% of cost. The $10,000 will be included with the inventory of goods on hand at the head office before the determination of the head office cost of goods sold and gross profit can be made.
To secure a better understanding of the interrelations of these various accounts it is suggested that the student set up all the accounts and follow through them the transactions given in the illustrative problem above, both on the books of the branch and on the books of the head office.
A final problem of adjustment as between the head office and branch books concerns the treatment of fixed assets carried on the books of the branch. It may happen that the branch makes purchases of various pieces of property which are charged up to fixed asset accounts on the branch books. To secure uniform treatment, particularly as regards depreciation, it is customary at the close of the fiscal period to transfer the record of all fixed assets to the head office books. This is accomplished by entry on the branch books of a charge to Head Office General account, and credits to the various fixed asset accounts. On the books of the head office the record will be a charge to the various fixed asset accounts and a credit to the various Branch General accounts. Usually, therefore, on the branch books appear only current asset items, current liability items, expense and income items.
Reports from the Branch
The reports which the branch makes to the head office depend entirely on the degree of control to be exercised by the head office over its various branches. Accordingly, no general methods of universal applicability can be described. A statement of some of the different kinds of reports and the use made of them will be given. In some cases the branch books are kept in duplicate, the duplicates of all books of original entry being sent to the head office at the close of each month or oftener if desired. From these duplicate records the head office can keep a ledger record with every branch for comparison with the ledgers as kept by the branches. In other cases the head office requires that the branch send in daily duplicate copies of all business papers covering the transactions of the branch. Thus sales tickets are made in manifold, one copy of every sale, whether cash or credit, being sent to the head office. This furnishes the head office with a control over the selling activities of the branch. If the branch has charge of its cash a duplicate ticket of all deposits made should be forwarded to the head office. The canceled checks drawn by the branch must be forwarded by the banker to the head office. This procedure keeps the head office informed as to the cash transactions of the branch, giving both a control over the cash and a fairly complete knowledge of disbursements on account of expenses and of receipts from collections. If, now, all purchases of stock-in-trade are made from the head office, the latter has a close control over all the activities of the branch. It may thus keep a duplicate set of records, although that is scarcely necessary inasmuch as summaries can be made by which to check up the books of the branch at the close of the fiscal period.
Sometimes, instead of daily reports periodic summaries of the branch activities are made to the head office and these provide the basis for checking up on the branch at the close of the fiscal period. Where the head office maintains traveling auditors, such frequent reports are not necessary.
Examples of Reports
Below are given two examples of different kinds of reports from the branch to the head office. The first is a periodic summary of cash transactions followed by a statement of collections from customers. The second form is a type of ledger account carried with each branch on the books of the head office in accordance with detailed reports made by the branch or by traveling auditors from the head office. It will be noted that provision is made in the account by means of special rulings to show the total expenses of each branch, which total will enter into the trial balance; and also for an analysis of the expenses of each branch under suitable heads, these latter being treated simply as memoranda. Any credits or adjustments are entered in red ink, and are to be deducted before showing totals.
| Periodic Cash Summary | |||||
| Receipts | Payments | ||||
| Cash Sales (by days) | $ . . . . . . | Wages | $ . . . . . . | ||
| Expenses | . . . . . . | ||||
| Total for period | $ . . . . . . | Sent to Head Office | . . . . . . | ||
| Customers Accts. (as below | . . . . . . | Payments into Bank | |||
| (dates & amts.) | |||||
| Other Receipts | . . . . . . | Balance on Hand, carried | |||
| to next statement | . . . . . . | ||||
| Total | $ . . . . . . | $ . . . . . . | |||
| Balance, per last statement | $ . . . . . . | ||||